Jokowi, Prabowo, and the Future of Economic Nationalism in Indonesia

James Schwab

Vol. 40 Associate Editor

The Indonesian currency, the rupiah, has declined precipitously during 2018, due to the strength of the U.S. dollar, Indonesia’s negative trade balance, and broader volatility in emerging market currencies.[1] Because of the rupiah’s decline, the current Indonesian government has implemented protectionist trade policies to improve Indonesia’s trade balance and to protect the economy.[2] Additionally, both major candidates in the April 2019 presidential elections have made economic nationalism and protectionism a major campaign issue.[3] However, Indonesia remains deeply connected to international organizations and the global economy. Its recent moves towards protectionism, driven by its politicians’ rhetoric, are better understood as a temporary shift rather than a structural change to Indonesia’s foreign relations outlook.

2019 Presidential Election and Economic Nationalism

The two main candidates in the April 2019 presidential election are current president Joko Widodo (“Jokowi”) and the same challenger he faced in the 2014 presidential election, former Indonesian general Prabowo Subianto (“Prabowo”). While religion was initially expected to be the election’s most important issue, both candidates have instead made it economic nationalism.[4]

President Jokowi has made his administration’s protectionist actions the centerpiece of his campaign, especially given the recent fears caused by the rupiah’s downturn. On August 10, 2018, when he formally announced his candidacy for the presidency, Jokowi centered his speech on themes of economic nationalism and the protection of Indonesian natural resources.[5] Jokowi noted that his administration had nationalized control of Indonesia’s Grasberg copper and gold mine and the Rokan oil and gas field, the world’s second largest copper mine and Indonesia’s largest oil block.[6] In addition to resource nationalization, President Jokowi’s government has recently sought to reduce Indonesia’s trade deficit by raising import tariffs, applying a 2.5% tariff on raw materials[7] and a 7.5% import tariff on 500 consumer goods.[8] As long as the rupiah remains near its historical low point and the election is in sight, Jokowi seems likely to remain oriented towards policies of economic nationalism.

Not to be outdone, President Jokowi’s main opponent, Prabowo, has also been focusing his candidacy on protectionist policies and the threats of internationalism.[9] Prabowo has warned of illegal Chinese workers stealing Indonesian jobs and of foreigners profiting off of Indonesia’s natural resources.[10] In particular, Prabowo has taken aim at Jokowi’s past reforms to Indonesia’s foreign worker regulations, which Indonesian firms requested in order to speed up the processing of foreign worker applications.[11] Prabowo has also suggested that Indonesia is accepting too many foreign workers and should learn from U.S. President Donald Trump’s plan for a border wall.[12]

Actual Implications

Based on Jokowi’s recent protectionist policy changes and Prabowo’s statements on economic nationalism, it is fair to question whether Indonesia is undergoing a structural change inwards, away from international organizations and international trade. However, the bulk of the evidence suggests that the recent protectionist moves are short-term and that neither presidential candidate would fundamentally alter Indonesia’s foreign relations policies while in office.

First, recent years have seen significant declines in Indonesia’s tariff rates, and tariff rates have remained low. While tariff rates have recently increased, there are no indications that this will remain once the rupiah rebounds from its drop in value. In 1995, the weighted average of tariff rates in Indonesia was 10.89%.[13] By 2013, the weighted average had fallen to 4.67%.[14] In the past, Indonesia responded to economic and political uncertainty by raising tariff rates.[15] Despite Indonesia doing so again now, such increases do not undermine the broad success Indonesia has made in lowering tariff rates. Instead, these tariffs can be better understood as an effort by the Indonesian government to make a short-term policy response to currency fluctuation.

Second, the concerns about foreign workers are primarily political in nature. The number of Indonesians working abroad far outnumbers the number of foreign workers in Indonesia. A 2016 study found that over 9,000,000 Indonesians work abroad as migrant workers,[16] dwarfing the 126,000 foreign workers in Indonesia.[17] Even with President Jokowi’s past policy changes liberalizing regulations on foreign workers in Indonesia, the country still has very restrictive policies that prevent a large influx of foreign workers.[18] Instead of a genuine policy grievance, Prabowo’s critiques of President Jokowi’s policies seem to be political in nature, driven by Prabowo seeking and receiving the endorsement of the Indonesian Trade Union Confederation.[19] Prabowo has not proposed any policy change from Jokowi’s administration, instead just suggesting that Jokowi learn from U.S. President Donald Trump’s idea of a border wall.[20]

Third, while both candidates have made resource nationalization a major campaign issue, both candidates understand that Indonesia needs to continue to prioritize foreign investment. While Jokowi claimed that the nationalization of the oil and gas fields was an attempt to protect them from foreign control, his administration also said it was willing to sell them if foreign companies made better offers.[21] Additionally, Jokowi’s administration has regularly issued economic reform packages aimed at easing regulations and improving government coordination.[22] While these efforts have been hampered by slow implementation, they show the goal of increasing, rather than decreasing, international investment in Indonesia.

Similar to his statements on foreign workers, Prabowo has suggested that resource nationalization could lead to the downfall of Indonesia.[23] However, while he is likely to use resource nationalization as a major talking point, he still has strong ties to major Indonesian businesses and seems unlikely to actually pull out of trade deals or create barriers to foreign investment.[24] Foreign investment in Indonesia still faces many issues, from corruption to regulatory barriers,[25] but neither presidential candidate is likely to proactively reduce it.

Finally, Indonesia remains very involved in international organizations, and neither candidate has suggested reducing Indonesia’s international obligations. Indonesia is a leading member of the Association of Southeast Asian Nations (ASEAN), which is headquartered in Jakarta and is involved in negotiations with China over the future of relations in the South China Sea.[26] Given the South China Sea’s importance in Indonesia’s future, both economically and militarily, Indonesia must remain involved in ASEAN and in these discussions.[27] Additionally, it won a seat on the UN Security Council in 2019 and 2020, where it will be a voice for Asia-Pacific. Indonesia wanted to join the Security Council in order to promote global peace, sustainable development, and global cooperation on a number of issues, giving it a responsibility to act on these measures.[28] Neither presidential candidate has suggested altering Indonesia’s involvement in any of these organizations. Since its policy of non-alignment during the Cold War,[29] Indonesia has a history of being a moderating voice and consensus builder in international organizations.[30] Regardless of which candidate wins the next presidential election, Indonesia can and should continue to serve in that role in the future.

Indonesian politicians use themes of economic nationalism to appeal to Indonesian voters, who often focus on the domestic economy and support protectionist policies.[31] The recent currency fluctuations have especially led next year’s presidential candidates to implement and advocate for policies of economic nationalism and protectionism.[32] However, such appeals regularly occur in Indonesian elections, and they rarely translate into action.[33] Rather than an indication that Indonesia will turn inward in the coming years, Jokowi’s actions and Prabowo’s statements are better understood as temporary policy shifts and political rhetoric to respond to currency fluctuation and win an election.

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